Case Note & Summary
By special leave, the Union of India appealed against the Calcutta High Court's Division Bench judgment dated 12 February 1992, which had reversed the Assistant District Judge's order setting aside an arbitration award. The respondent, a contractor, had entered into an agreement in 1968-69 with the appellant for excavation of a feeder canal between RD 68.00 and RD 97.00. Over time, disputes arose and were referred to arbitration in installments; this was the fifth arbitration. Four earlier awards had been made. The present dispute concerned hire charges of equipment deployed by the Farakka Barrage Project. The matter was referred to the Goyal Committee for rationalization. Following its report, the respondent by letter dated 8 August 1984 sought arbitration for refund of excess hire charges, stating that another contractor had already received a refund. By proceedings dated 18 November 1984, the General Manager appointed T. Raja Ram as sole arbitrator. After entering reference on 12 December 1984, the respondent claimed refund of hire charges, to which the appellant filed a counter-statement. On 6 March 1985, the respondent filed further claims totaling Rs.32,45,538.27, covering repairs to departmental equipments, security watch and ward expenses, the final bill, and part interest. The appellant objected that the arbitrator could not unilaterally enlarge the reference. The arbitrator nevertheless passed a non-speaking award on 18 August 1987 for Rs.35,72,550 with interest at 15% per annum from 1 July 1976. The appellant challenged the award under Section 30(c) of the Arbitration Act, 1940, contending the claim was barred by limitation, the arbitrator had no power to enlarge the scope of arbitration, and no power to award interest at a higher rate without claim. The Assistant District Judge, Murshidabad, set aside the award on 19 January 1991, upholding those contentions. The High Court, however, held that there was no error apparent on the face of the award and directed the civil court to pass a decree in terms of the award within four months. The Supreme Court considered two questions after the appellant's counsel did not press limitation: whether the arbitrator could unilaterally enlarge the scope of reference, and whether the arbitrator had power to award the amount and rate of interest in a non-speaking award. The Court emphasized that an arbitrator's jurisdiction is derived solely from the arbitration agreement and the submission furnishes the source and limit of authority. Relying on U.P. Rajkiya Nirman Nigam Ltd. v. Indure Pvt. Ltd., the Court held that arbitrability is a jurisdictional issue to be finally decided by the court under Section 33, and an arbitrator cannot conclusively decide his own jurisdiction. The Court distinguished N. Chellappan and Neelakantan Construction, which dealt with acquiescence to the appointment of an arbitrator, not with enlargement of the reference. It held that mere participation or acquiescence to the appointment does not preclude a party from challenging the arbitrator's unilateral expansion of authority. Since the reference was expressly limited to refund of hire charges, the arbitrator exceeded his jurisdiction by deciding additional claims. Consequently, the Supreme Court allowed the appeal, set aside the High Court's order, and restored the Assistant District Judge's order setting aside the award. The question of interest in the non-speaking award was not separately decided because the award was invalid for want of jurisdiction.
Headnote
A) Arbitration - Jurisdiction of Arbitrator - Unilateral Enlargement of Reference - Arbitration Act, 1940 Sections 30(c), 33 - The respondent sought arbitration only for refund of hire charges under the Goyal Committee report; after entering reference, the arbitrator included additional claims for repairs, security watch and ward, final bill and interest without the appellant's agreement. The appellant objected to the enlargement. Held that an arbitrator derives authority solely from the arbitration agreement and cannot unilaterally enlarge the scope of submission; the court has final jurisdiction to decide arbitrability under Section 33, and participation in proceedings did not amount to acquiescence to excess of authority. (Paras Not mentioned) B) Arbitration - Acquiescence and Estoppel - Challenge to Arbitrator's Jurisdiction - Arbitration Act, 1940 Sections 5, 11, 30, 33 - The respondent relied on N. Chellappan and Neelakantan Construction to argue that the appellant's participation precluded challenging jurisdiction. The Court distinguished those cases, holding that acquiescence to appointment of an arbitrator does not extend to an arbitrator's unilateral enlargement of his own power to decide disputes not referred. Mere acceptance of the arbitrator's jurisdiction for adjudication of the extent of the arbitration agreement or arbitrability does not disentitle a party to seek remedy under Section 33. Held that the principle of acquiescence is inapplicable to enlargement of the reference. (Paras Not mentioned) C) Arbitration - Non-Speaking Award and Interest - Power to Award Amount and Rate of Interest - Arbitration Act, 1940 Section 30 - The arbitrator awarded Rs.35,72,550 with interest at 15% per annum from July 1, 1976; the appellant contended that the arbitrator had no power to award interest at a higher rate without claim and that the award was non-speaking. The High Court held no error apparent on the face of the award; the Supreme Court examined this as a second question. Since the award was set aside for lack of jurisdiction to enlarge the reference, it was unnecessary to decide the interest question separately; the award could not stand. (Paras Not mentioned)
Issue of Consideration
Whether the arbitrator had jurisdiction to unilaterally enlarge the scope of the reference; whether the arbitrator had power to award the amount and rate of interest in a non-speaking award
Final Decision
Supreme Court allowed the appeal, set aside the High Court's order, and restored the Assistant District Judge's order setting aside the award; held that the arbitrator could not unilaterally enlarge the scope of reference and that acquiescence to appointment does not extend to excess of jurisdiction. Interest question not separately decided because award invalid.
Law Points
- An arbitrator's jurisdiction is derived solely from the arbitration agreement
- the court has final authority to decide arbitrability under Section 33 of the Arbitration Act
- 1940
- arbitration reference cannot be unilaterally enlarged
- acquiescence to appointment does not extend to enlargement of powers
- award in excess of submission is invalid
